Thursday, November 03, 2011

Chart of the Day: Record GDP with -6.6m Workers

The chart above shows that while real GDP has made a complete recovery and was above its pre-recession level for the first time in Q3 2011 (see blue line), employment is still 6.6 million jobs below the pre-recession peak (see red line). In other words, we're producing more output now than ever before in U.S. history, but we're doing it with 6.6 million fewer workers than it took to produce roughly that same output in Q4 2007.

50 Comments:

I think that this is BS. First, the BLS does not have a good record of measuring inflation. (It is not surprising that when you flood the system with liquidity you will get a pickup. But unless all the debts that were used to finance that pickup are forgiven there will be a massive correction needed afterwards.) Second, if the financial system marked to market rather than to model the reported GDP would come out lower.

This is a fascinating chart. In contrast to the always optimistic Vange I think this chart is probably roughly right.

We know the private sector produces goods and services better an cheaper continuously.

The public sector, such as the Pentagon and military production, only gets more expensive and less reliable all the time. We now have high-maintenance $3 billion bombers (each) that are not always ready for service--hangar queens.

6.6 million people are not all collecting unemployment benefits equal to their old wages, so the missing money must be accounted for. Less consumption? Perhaps... Homelessness? Unfortunately, very real... Earnings off the books? Likely ... Borrowing (living on your credit cards) ? Very likely ...

If things worked as intended the rising GNP would result in more work. Not less productive work, of course, but new production in innovative and inventive modes, markets that did not exist before.

The so-called "long recession" of the 1880s-1890s (some say 1873-1913), were boom years, generally, new enterprises and new opportunities were common. Today, they are uncommon. ... at least for about 6.6 million of us...

It's the miracle of arithmetic. You create trillions of dollars out of nothing, add it into the GDP equation, and GDP goes up. If only physics or biology could discover such miracles as exist in today's 'economics'.

The market seems disappointed in today's unemployment numbers. When I look at the numbers, I see some of the best job growth we have seen in a while (and I tend to be a naysayer). Based on the household survey, here are the seasonally adjusted number of people employed nationwide:

This is over 1 million jobs added in the last three months. I trust the household survey more than the business survey as there are far fewer assumptions (business birth death model, later adjustments, etc). It seems to me that the business survey tends to get revised to be more like the household survey.

a) not totally overstated given that they are using a delfator that is only half of CPI and PPIand b) not being driven by record federal deficits and an unprecedented swelling of the fed balance sheet.

this is what happens when you try to manage to a number instead of results.

borrowing a trillion and spending it on consumption is not the same at all as earning a trillion.

looking at just C+I and using cpi as a deflator shows a VERY different picture.

These numbers aren't surprising at all, if you take into account that what we are actually experiencing is a rearrangement of resources from the bubble industries, to others.

The people who worked in housing and construction and the industries that serviced them are not going to be as flexible as capital, so its expected that money would have rearranged itself a lot quicker than labor. Its very expected that there will be a lag period between the two...and its expected that some of those people are going to have a hard time realigning.

Looking at broad aggregate measures isn't going to explain much to us. Looking at where hiring has gone up over the past few years, who is unemployed etc...will give us a better idea. (and we've seen those numbers before; high-tech and knowledge based is still going up...and the chronically unemployed are those who services the bubble industries of a few years ago. No surprise)

The biggest danger in this, is that it gives ammunition to Leftist politicians to push for greater welfare states, ala Europe. Europe's dynamics are very similar to this...large masses of unemployable people who relied on now dead industries, and never managed to realign themselves due to a massive welfare state which incentivised non-work.

Yet another brilliant post on this blog. A torpedo has a range of what...10 miles? An aircraft carrier travels around with 5 destroyers/cruisers and probably 2-4 subs, a complement of about 20-30 anti-sub helicopters amongst them, and about 5-10 anti-sub airplanes...with ranges of 200-500miles from the carrier. Yep...you're a regular Napoleon Benji. You and Vange should consult for the Pentagon.

Not that I want to get into an unrelated and thoroughly ridiculous conversation with you.

The people who worked in housing and construction and the industries that serviced them are not going to be as flexible as capital, so its expected that money would have rearranged itself a lot quicker than labor. Its very expected that there will be a lag period between the two...and its expected that some of those people are going to have a hard time realigning.

This all sounds nice but we need to take a look at all of the data and see where the GDP 'growth' is coming from. When the government spends a great deal more and the Fed injects money into the system it is easy to see a pickup in some activity. And when the mark to market rules are dropped in favour of mark to model it is easy for both sides of a transaction to report gains. But these accounting 'gains' are not real and cannot be made to look real in the long term.

What the economy needs is a contraction that will clear away the garbage and allow for a sustainable growth to take place. I don't see us being anywhere close to that point. Get back to me when an ounce of gold buys you the Dow and we will have a good starting point for a recovery.

Yet another brilliant post on this blog. A torpedo has a range of what...10 miles? An aircraft carrier travels around with 5 destroyers/cruisers and probably 2-4 subs, a complement of about 20-30 anti-sub helicopters amongst them, and about 5-10 anti-sub airplanes...with ranges of 200-500miles from the carrier. Yep...you're a regular Napoleon Benji. You and Vange should consult for the Pentagon.

A carrier can be taken out by very cheap ballistic missiles carrying ordinary warheads and by supersonic cruise missiles. They are not very useful in a real war against a competent enemy. The US defense budget should be cut by 95% over the next ten years. The 5% should be more than enough to actually defend the country from invasion, which is what a defense department is supposed to do. Stop spending money on protecting Japan and Germany.

I hear the Dow 20,000 a comin'It's rollin round the bendAnd I ain't seen the sunshine since I don't know when,I'm stuck in Gold Worship prison, and time keeps draggin' onBut that Dow keeps a rollin' on up to 20,000

I believe it.Full production and full employment are not the same thing.Some employees are liabilities not assets and actually can make a business less productive. Anyone who has ever had a real job doing real work would probably agree that some workers have negative productivity.

So we should forget full employment as a goal. That goal just seems to lead to inflation.

Read up on quiet submarines, and the difficulty in tracking them. Also exocet-type missiles.

The Chinese recently surfaced (to everyone's surprise) a submarine in the middle of our Seventh Fleet, while the fleet was wasting your money on war maneuvers off the coast of China (a fleet that should be retired, btw).

The signal was clear---the sub could have easily sunk several ships.

BTW, it was Admiral Paul Cohen, in the early 1970s, who first suggested an all-submarine Navy in an issue of Foreign Affairs magazine. The Navy has been pointedly ignoring the extreme vulnerability of surface ships ever since.

Carry this theme out to hyperbole... we become so efficient, computers and robots replace all workers and can provide for and tend to all our needs. No human need work, nor can work as a robot is quickly assigned to any vacant position. What then? We'd have no income, the bank's computers send the robot police to evict us from our homes? Is there no general social dividend we pay ourselves for our increased efficacy?

Broll: "What then? We'd have no income, the bank's computers send the robot police to evict us from our homes?"

Why would they do that? Our homes were paid for the same way everything else was. We own them, and owe nothing. Why would we need income?

Following your example, as productivity increases, we have more for less work. This is a good thing, by the way. At the end point,we have everything we want/need for no work. Why do you think this is a problem?

"Is there no general social dividend we pay ourselves for our increased efficacy?"

It seems this is indicative of a gross substitution from labor to capital. Regulation and Obamacare's upcoming 2014 expenses for business are going to make labor relatively more expensive to simply substituting to technology.

Also - interestingly - 2002-2003 the slope of growth looks similar to 2010-2012. One could even draw a pretty straight line through them. Perhaps indicative of the natural rate of GDP growth, and the false growth and bubble of 2004-2008?

No human need work, nor can work as a robot is quickly assigned to any vacant position. What then?

This is actually a relevant question. Bill Joy, the co-founder of Sun Microsystems, wrote about this possibility in Wired Magazine in April, 2000: "Why the future doesn't need us".

He writes:

"Robotic industries would compete vigorously among themselves for matter, energy, and space, incidentally driving their price beyond human reach. Unable to afford the necessities of life, biological humans would be squeezed out of existence. There is probably some breathing room, because we do not live in a completely free marketplace. Government coerces nonmarket behavior, especially by collecting taxes. Judiciously applied, governmental coercion could support human populations in high style on the fruits of robot labor, perhaps for a long while."

It would be better to look at the private portion of GDP with private jobs. Government does not need many workers to spend money.

No. You can't separate public spending from the 'private portion of GDP' if private industry is selling goods to government that is borrowing money from the Chinese or simply printing new money by having the banking system create it out of thin air. The US economy has little to do with the free market.

"If you are afraid of Arabs you are far more cowardly than I would have thought possible."

I hear this kind of crap alot among the anti-American types like Vangel. They're so "brave" they will just shrug their shoulders while others are getting blown up, gutted, and slaughtered in the streets. Heroes, I tell ya!

We know the private sector produces goods and services better an cheaper continuously.

Yes, we do. But VangeIV is correct that inflation is vastly underestimated. When we guess that prices rose, say 2% in a given year, we use no change (0) as a basemark. But, given productivity increases, we could expect that prices would drop -- as we all know has been the case with consumer electronics.

Robots and computers have been eliminating jobs for four to five decades. Yet the number of people employed over the globe and especially in developed economies has nearly doubled. Where is there any evidence - evidence, not science fiction novels - that human labor and creativity will ever be displaced? Why should anyone seriously consider Luddite arguments?

This chart had me thinking all day. Often I catch up on reading your blog on Fridays, and am always amazed at how thought provoking your posts are. Thank you for providing us with these links, graphics and insights. During this past recession, I watched as technology was installed to help remaining staff provide products and services at levels to which customers and citizens have become accustomed. This graph does not surprise me. I also spend a good deal of time service patching operating systems, reconfiguring screen layouts, upgrading servers, writing code...and until robots can do that, I have no worry that they will replace "meat puppets" with skills other than eating and posting "lizard brain" comments. Keep up the good work professor.

Jet, don't you know? Broll and Alex don't use computers (this blog post was read to them and they spoke their comments back to someone who typed it in for them), they sew and wash all their clothes by hand, bake their own bread in clay ovens from the grain they harvest, then toast it in toasters they made by themselves by hand. No car, as they're all welded by robots, nor anything else that you or I'd buy in store, as all that inventory is planned by computers. They live fantastically "rich" lives in the countryside, eating their hand-baked bread in their wooden shacks, happy with the knowledge that no robots or computers ever benefited from their labor. ;)

More seriously, Alex does have some valid concerns, as Bill Joy is certainly no dunce, and it's always possible that Broll may be right that our current income inequality could skyrocket upwards, as the returns to intellect and owning more robots grow ever greater. But we are so far from such things happening, we have plenty of time to figure it out.

I hear this kind of crap alot among the anti-American types like Vangel. They're so "brave" they will just shrug their shoulders while others are getting blown up, gutted, and slaughtered in the streets. Heroes, I tell ya!

There is nothing more anti-American than giving up your liberty because you are afraid of Arabs or driving your country into bankruptcy because you are afraid of an invasion that nobody can execute.

This 'success' reminds me of when Greenspan came before Congressional committees and bragged that there were no wage gains and thus inflation was under control. Both Republicans and Democrats all nodded in approval, even the esteemed Barney Frank.

The tie-in to the GDP-Employment chart shown is that this country is supposed to make life better for its citizens not worship inflation or GDP.

Jet, and Sprewell, so the point is not completely lost, this is certainly not a luddite argument from Bill Joy. The passage I cite from the article postulates a future in which robot labor replaces human labor. The point is that with the proper tax code in place, this might not be so bad, as humans could live large off robot labor, through coercion and tax collection.

Alex, we live off robot labor now, like these robots welding cars, without needing your "proper tax code in place." Robots do not imply artificial intelligence, merely mechanical versions of our physical appendages, like robot hands or legs. As for what happens to us humans, we get by just fine with washing machines washing our clothes and dishwashing machines washing our dishes, which humans used to do a century ago. The same will continue with robots, we'll find other stuff to do and trade with each other.

"The point is that with the proper tax code in place, this might not be so bad, as humans could live large off robot labor, through coercion and tax collection."

This is imaginative BS. Robots currently work tirelessly, without complaining, for no pay. Why do you think they will be paid in the future? What would they wish to exchange their labor for? Booze, prostitutes, extra oilings, lobster dinners?

How could humans live large? Would robots, in their own self interest, provide things for humans to buy?

I am curious about how GDP is measured. To me, it seems that our collective wealth as a nation that we all share is made up of goods and services. However, some "services" would be questionable as to whether to include in GDP. For example, any and all services that pertain to income tax, including IRS personnel, tax accountants, and tax lawyers. These services are needed only because we have an arcane tax system that IMO takes away from our collective wealth. If we did not have that ridiculously complex system, most of the people employed in that arena could make more productive contributions to our wealth in some other sector.

More generally speaking, most government workers do not add to our real wealth. If those individuals were working for themselves or for companies that produce something useful, our collective wealth would be greater.

So if the GDP has increased only because of the expansion of government, I would question the method of GDP calculation.

(Over the weekend I read that Federal workers now receive pay that is 20 percent more than their counterparts working in private industry. If you include their benefits package, they receive 50 percent more than workers in private industry!)